By Gao Peng & Wang Jingyu
A large number of stores are closed and the net profits are in negative growth, the current plight of the sportswear brands is exactly an omen of the industry heading into mature. Along with the accelerated urbanization process and sustainable growth in the resident income, there are growing needs for leisure and entertainment among the public, so the domestic sportswear industry will be in another golden decade after this shakeout.
A large number of stores have been closed with the net profit in negative growth... in 2012, all the domestic sports shoes & clothing brands were thrown into a dilemma, with no exception. An insider admitted that the native sports brands have ended their "golden decade" and if they wanted to have another new growth, business models should be changed.
Emergency "brake" to the industry growth
Recently, top-five domestic sports brands - ANTA, LI-NING, PEAK, XTEP and 361 Degrees have announced their 2012 Annual Performance Reports successively. According to the annual reports, the collective net profits of the whole industry are negative in growth. Among them, the former "pacesetter" --- LI-NING suffered a huge loss by nearly RMB 2 billion Yuan in the whole year, which was the first-ever operating loss since its listing in 2004. Both PEAK and 361 Degrees confronted "double recessions" in their revenues and net profits by a fall of more than 30 percent. Similarly, XTEP, in a sustained high growth after its listing in 2008 has also passed its prime with net profits down by 30 percent compared with this time last year although the revenues bucked the trend with a slight increase of RMB 10 million Yuan, the net profits were increased by 16.2 percent over the previous year.
In the downturn of the industry, the ranking of the brands is undergoing changes quietly. Anta suffered the first "double recessions" in its revenues and net profits since its listing 5 years ago, however, it has fully passed the "Big Brother" LI-NING and firmly secured the top position of the native sports brands with its turnover of RMB 7.622 billion Yuan and net profits of RMB 1.358 billion Yuan.
These major sports brands are cutting their marketing areas and closing stores while they are declining in performance. Among the brands, LI-NING has closed the largest number of stores of 1821, reduced from 8,255 in 2011 to 6,434 in 2012. Followed by Peak, 1323 retail outlets have been cut. Also ANTA has closed 590 stores in total. The reasons for closing come from 2 aspects, the first is the operating expenses are getting higher with negative investment returns and the second is that they want to get rid of a large number of backlog of inventory. Relevant data show that in the last year, these 5 domestic well-known sports brands of LI-NING, ANTA, 361 Degrees, XTEP and PEAK had the inventory equal to RMB 3.028 billion Yuan in total.
Ma Gang, an expert observer of the sportswear brands said that there are three main reasons for the overall decline of the domestic sports shoes & clothing, one is that the enterprise operating costs are rising fast and the overall consumer willingness of residents remains weak; another is that the sports brand retail channels are getting saturated with serious product homogeneity; and the third one is that the mass consumption is shifting to a wider choice of casual fashion from sports styles.
Days of making money with eyes closed have gone forever
"Days of making money with eyes closed have gone forever", sighed Zhang Tao, vice president of ANTA, with regret. His words would be the case. After the success of the application of Beijing Olympic Games, there was an explosive development of the sporting goods market in China, and the native sports brands experienced a "golden decade". Data from China Sporting Goods Federation (CSGF) show that during 5 years from 2007 to 2011, domestic sporting goods stores were in an average growth by 10 percent annually and the sales volume increased by above 20 percent every year in a surprising momentum. In this context, the excessive optimism allowed enterprises to increase the investment in expanding their production capacity and increase their stores with sufficient money raised in the stock market. However, in the wake of long-term extensive expansion, there came the problems such as oversupply, large inventory and legged management. With the saturation of the market and the rising of the upstream costs, sports goods industry in China came to the lowest in 2012.
"No industry can be developing with a positive slope, it must be growing in shock and spiral", said Zhang Tao, the current plight of the sportswear brands is exactly an omen of the industry heading into mature. "From rushing in to making money insanely, then to making money among most companies, next making no money among most companies, and choosing to retreat at last, this is the inevitable development path for many industries in China, such as home appliances, mobile phones and the automotive industry, all of them have experienced this period."
Transformation is urgent
In order to grasp the market tendency and consumer needs accurately, Ding Shizhong, Board Chairman of ANTA has been to almost all of prefecture-level cities in China in the past two years. According to his findings, there are growing needs for leisure and entertainment among the public along with the accelerated urbanization process and sustainable growth in the resident income. For the future, he is very optimistic: "The industry will be in another golden decade years after this shakeout."
But in the context of orders continuing to decline and having difficulties in cleaning up inventory, how to find a breakthrough for native sports brands will be imminent. Li Ning pointed out in the annual report conference that the main task in 2013 would be cleaning up the inventory, adjusting the business models and strengthening retails. Anta also believed that the existing mode of "brand + wholesale" would hardly meet the market demands and would change into the retail-oriented business model in the days to come, from the pursuit of orders to valuing single-store revenues. Ding Shizhong said that the past development model depended on advertising at first to create the brand and then sold to wholesalers, without considering whether these goods were sold out or not. While in the retail mode, it would be necessary to take into account the stores under the distributors for the store needs would be more important than wholesalers.
At the same time of "destocking" actively, sporting goods manufacturers have accelerated the pace to diversify the business. In the annual report, ANTA is expected to increase its stores of children's sporting goods to 1000 from 833 in the last year by the end of this year. Coincidentally, 361 Degrees and XTEP also plan to increase their investments in the field of children's clothing and hope to create a new growth point for the company by that. In addition, the market of outdoor products is another direction for breakout, LI-NING, 361 Degree, ANTA and other brands have launched their own outdoor products.
However, an insider reminds that it is necessary to guard against another round of overproduction. Either of children's clothing and outdoor products may follow the footsteps of sports shoes & clothing with product homogeneity, saturated channels, heavy inventory, cut-throat competition and other similar problems.
